Vat On E-Commerce

United Arab Emirates adopts new regulations for reporting VAT on e-commerce?

Sidra Salman of SS&CO discusses what companies need to be aware of in order to comply with the recently announced reporting requirements for resident taxpayers making taxable supplies through e-commerce in the United Arab Emirates.?

As the first tax imposed at the federal level and managed by the Federal Tax Authority, the value-added tax was implemented in the UAE on January 1, 2018. Seven emirates make up the United Arab Emirates: Umm Al Quwain, Ras Al Khaimah, Fujairah, Dubai, Ajman, and Dubai. Separate reporting guidelines were created to divide the VAT collected between the federal government and the emirates.?

Since the UAE implemented VAT, VAT-registered individuals are required to report taxable supplies (including those subject to VAT at the standard rate, which is currently 5%) in the emirate where the fixed establishment associated with the supply is located, in the case of resident taxpayers, or in the emirate where the supply is received, in the case of non-resident taxpayers.?

Report at the emirate level?

The new regulations, which went into effect on July 1, compel resident taxpayers to disclose taxable supplies obtained through e-commerce in the emirate where the supply is received when the aggregate value of those supplies exceeds 100 million UAE dirham ($27 million) in a given calendar year. The new reporting requirement is consistent with the global trend of taxing e-commerce supply at the point of consumption and should lead to a more equitable allocation of VAT revenue among the emirates.?

The taxable supplies will be listed in the taxpayer's VAT return against the appropriate emirate based on this (box 1 of the VAT return).?

New Reporting Process for E-Commerce-Made Taxable Supplies?

Article 72 of the UAE VAT Executive Regulations were modified by Cabinet Decision No. 99 of 2022, which was released on October 21, 2022, by the UAE cabinet. The changes took effect on January 1st.?

With regard to taxable supplies conducted through e-commerce, specific record-keeping requirements are introduced by the revised provisions of Article 72 of the UAE VAT Executive Regulations. The above-mentioned default rule is not applicable in this case.?

As of July 1 (subject to the threshold requirements), taxable individuals making taxable supplies through e-commerce will need to preserve records of e-commerce transactions based on the emirate in which the supply is received.?

Definition of e-commerce?

The process of selling goods or services via electronic platforms, electronic applications, a store on social media, or other electronic means is referred to as "e-commerce" in the proposed amendments. The standards and requirements have not yet been established.?

Threshold?

For taxable individuals who make taxable supply through e-commerce in excess of 100 million UAE dirham per calendar year, new record-keeping obligations are in effect.?

Date of Application and Time Period?

The updated documentation standards shall be followed:?

For the taxable person whose taxable supply made through e-commerce surpass the 100 million UAE dirham threshold for the calendar year ending on December 31, 2022, beginning with the first tax period beginning on or after July 1 and for a term of 18 months.?

beginning with the first tax period of the calendar year that starts after the day taxable e-commerce supplies surpass the 100 million UAE dirham mark for any year after 2022, for a two-year term.?

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Taxpaying non-residents?

There have been no changes made to the non-resident taxpayer reporting requirements. Since the introduction of VAT in the UAE on January 1, 2018, non-resident taxpayers are expected to report emirate-by-emirate, based on where supplies are received. This is applicable starting with the first supply and to all taxable supplies made by non-resident taxpayers.?

The UAE VAT Executive Regulations Amendment has not modified the criteria for non-resident taxpayers, but it is now more probable that the FTA will audit whether the non-resident is complying with the reporting obligations. With effect from March 1, non-resident taxpayers will be obliged to submit a voluntary disclosure to address any errors in the allocation of taxable supplies in cases of improper reporting of supplies at the emirate level.?

Voluntary Disclosures Must Be Made in the Event of Inaccurate Reporting?

Sheikh Mohamed bin Zayed Al Nahyan, the president of the UAE, also issued Federal Decree-Law No. 28 of 2022 on Tax Procedures on September 30, 2022, in addition to amending the UAE VAT Executive Regulations. The revised Federal Decree-Law No. 28 of 2021 that replaced Federal Decree-Law No. 7 of 2017 on Tax Procedures is repealed by the new law (the current law). Beginning on March 1, the new Tax Procedures Law will go into effect.?

The necessity to submit a voluntary disclosure in the event of a reporting error is a significant shift. Currently, only instances where an error led to an understatement of VAT of more than 10,000 UAE dirhams require taxpayers to submit a voluntary disclosure. Taxpayers are obligated to submit a voluntary declaration in the event of reporting errors as a result of the removal of the monetary barrier. Due to the new Tax Procedures Law, taxpayers are now legally required to amend any information about supplies that was declared improperly at the emirate level.?

?The existing law imposes a 1,000 dirham fine for the first offense and a 2,000 dirham fine for consecutive offenses for filing an improper VAT return. However, as an exception, the penalty must be at least 500 UAE dirhams and equal to the tax difference if the inaccurate tax return results in a tax discrepancy smaller than the specified penalty. The minimum fine of 500 UAE dirham has been eliminated by the new law, however, it's not clear if the fine for filing a false VAT return will also be eliminated.?

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Planned Actions?

If supplies are made through e-commerce, UAE-registered individuals should determine if they will over the cap of 100 million UAE dirhams in supplies this calendar year. It might be necessary to improve systems and data collection to identify the emirate where the supply is received.?

Additionally, in light of the new Tax Procedures Law, taxpayers should assess their present compliance with the emirate-level reporting requirement and think about making a voluntary declaration to make any errors.?